Canada’s First Time Home Buyer Incentive program kicked in September 2 and while some say it is not generous enough to affect new homebuyers in high-priced markets like Toronto and Vancouver, it should benefit those in most regions of the country.
Under the program a qualified first-time buyer can apply to receive a cash infusion from the Canada Mortgage and Housing Corporation (CMHC) to boost the size of their home purchase down payment.
CMHC will provide either 5 or 10 per cent for new homes and 5 per cent for resale homes.
The funds are registered on the title of the home in the form of a second, interest-free mortgage. The homeowner needs to pay the loan back only when the home is sold or the 25-year mortgage matures—whichever comes first.
In exchange for the interest-free loan, CMHC retains 5 per cent of the equity of the home’s value and this must be repaid when the loan is repaid.
“If a homebuyer receives a 5 per cent Incentive, the homebuyer will repay 5 per cent of the home’s value at repayment,” according to CMHC.
This means that if the home appreciates or depreciates in value, the size of the loan payback will grow or decrease by the same percentage.
For example, say a first-time buyer bought a new condominium for $500,000 and received a 10 per cent incentive of $50,000 then the home increased in value to $550,000 when it eventually sold. The homeowner would then need to pay CMHC back $55,000 to reflect the increase in value.
There are other restrictions: the two main ones being that the annual income of the applicant cannot exceed $120,000 and the maximum down payment for new homes cannot exceed 10 per cent (though 5 per cent is expected to be more common).
A household earning the maximum income of $120,000 with a 5 per cent down payment, therefore, would be limited to a resale home of $505,000.
A study by Zoocasa—an online , a real estate online portal—estimates that 19 of 26 markets in Canada would have homes priced at, or below, the incentive ceiling.
Zoocase found the markets where the average homebuyer would not qualify for the incentive include Toronto and several markets in Ontario’s Greater Golden Horseshoe such as Hamilton-Burlington and Kitchener-Waterloo, as well as from in Greater Vancouver, Victoria and the Fraser Valley.